Cashless payments are convenient and safe, but it makes it easier to overspend.
In our never-ending quest for more convenience and less waiting around (boring!), it was perhaps inevitable that cash would also be a target for replacement by newer alternatives.
Digging around for crumpled notes that have been who-knows-where, and doing mental sums to count out change? Ain’t nobody got time for that!
Sure, supporters of going cashless put up some very convincing reasons for their agenda, such as reduction of tax evasion, fraud and other financial shenanigans; eliminating an anonymous mode of payment for illicit activities; and even improving public hygiene by reducing the spread of germs.
But there are unforeseen consequences to reducing something as visceral as money into a series of digits that you never actually touch or see. Here are 3 startling ones.
Going Cashless Make You Spend More
Ok let’s start with the most obvious one. If you feel like the more you use your credit cards, the more difficult it is for you to stay in control of your finances, it’s not just your imagination.
Researchers have found that when using cashless forms of payment, people tend to spend more. The reason? Cashless modes of payment are less painful.
Said Priya Raghubir and Joydeep Srivastava, co-authors of the paper linked above, “the more transparent the payment outflow, the greater the ‘pain of paying’… leading to less transparent payment modes being easily treated as play or ‘monopoly money’”.
In other words, by removing the act of handing over physical cash for a purchase, credit cards and other cashless forms of payments make it much easier to part with our money.
Raghubir and Srivastava added that paying with credit cards further dulls the pain of paying by a) creating a separation in time between the purchase and the payment and b) combining different purchases together. This makes it difficult to attribute the bill to any one purchase, which makes it harder to break the habit.
Singaporeans have a hard enough time controlling their credit card usage as it stands. Add in e-wallets (which necessitates you to deposit money before you use it – effectively locking in your commitment to spend) and mobile payments (which don’t even require you to take out your wallet), and things will only get that much harder.
You Include More Unhealthy Purchases When Paying Cashlessly
There’s another consequence to not paying with cash, and this one damages both your wallet and your health.
In a consumer psychology study spanning 1,000 households over 6 months, the University of Oxford observed that credit card users ended up with more unhealthy food items in their grocery baskets.
We know that manufactured snacks such as potato chips, ice cream, chocolates, cookies and pies are designed to trigger impulse buys. Nobody deliberately adds these snacks to their regular diet, yet we hardly ever escape the supermarket without a pack of Cadbury’s or a pint of Ben and Jerry’s. (Reading this paragraph already has you jonesing for a hit, hasn’t it?)
The researchers of the consumer household survey linked above explained their observation: The pain of paying can curb impulsive behaviour, thereby reducing or eliminating unhealthy snacks from the checkout line.
With cashless payment methods, which, remember, reduces the pain of paying, shoppers tend to be more impulsive with vice purchases.
You Value A Cashless Purchase Less
If paying with cash causes more psychological pain, can paying with cash also make you value your purchase more? On the flip side, do cashless payment modes make you value your purchase less?
Unfortunately, recent studies suggest the answer is yes. In a 2016 paper, Avni M. Shah et al found that university students who cashlessly bought a mug for $4.95 were willing to part with it for an average of $3.83 – which, you may notice, is less than what they originally paid.
However, their counterparts who paid in cash wanted an average of $6.71 in exchange for giving up the mug.
This finding dovetails with another observed cognitive bias known as the Endowment Effect, where we ascribe greater value to an item just because we own it.
(Remember that old WC3 Night Elf joke: “This is my owl. There are many others like it, but this one is mine”. Yeah, the Endowment Effect works exactly like that.)
However, in this case, the cashless group were willing to part with their mug for significantly less, to the point of accepting a financial loss.
This highlights a potential downfall of our incessant march towards cashless payments; that we will come to value less and less the goods we buy, which could lead to a cycle of buying more in an attempt to regain a sense of satisfaction and pleasure.
Going Cashless Has Its Perks
Surely it’s not all doom and gloom. Although going cashless may change our relationship with money, it also solves some inherent problems.
For one, it is easier to recover a sum lost via digital fraud – you can report the fraudulent transaction for your bank to begin investigations and recovery. However, swindled cash is significantly harder to get back.
Another advantage is convenience – imagine how frustrating your daily commute would be if you had to queue up and buy an MRT ticket in cash everyday.
As cashless payment options like PayNow open up new challenges, we may need to come up with new and creative ways to help stay in control.
A key tenet in sticking to a budget, is putting aside a set amount for each category of spend. This is arguably easier to do with, for instance, an e-wallet for all your cold-brew coffee indulgences, than, say, keeping separate envelopes of money lying around.
Yet another way to benefit from going cashless is to use the right credit cards for your spending. Doing so will generate savings and other privileges which you otherwise might not receive. To help ensure you don’t overspend, adjust your credit card limit to match your budget.